How could these strong jobs numbers undermine Biden’s re-election prospects?

But on the surface, these latest jobs numbers may not help the president’s re-election campaign. That’s because there are not one, but two risks that could be troubling in the months leading up to November: the risk of rising inflation and the risk of a recession.

The January nonfarm payrolls figure was double what economists had expected. Hourly earnings also increased.

These numbers are good for workers and job seekers. But they raise concerns that Federal Reserve Chairman Jay Powell’s economic medicine is not yet working as expected and that the economy is not doing well. ~ no Cooling.

“Wages warmed 0.6%, the highest since March 2022,” Jeff Schulze, head of economics and market strategy at ClearBridge Investments, wrote in a note to clients. “This figure, combined with the overall jobs numbers, would effectively wipe out the March rate and raise fresh concerns about a possible reacceleration of inflation.”

context: January’s wage surge probably isn’t a warning sign for inflation. Here’s why:

See also: Interest rate cut in March? May now feels so far away.

This can be seen very clearly in the market’s reaction to the data. Futures markets, which bet on future interest rates, have again reduced bets on an early rate cut. The outlook for an interest rate cut in the second half of the year was also revised downward. If inflation doesn’t subside, Powell may have to keep rates high for longer.

A month ago, futures markets expected the Fed to cut interest rates by about 1.25 percentage points between now and its September meeting (its last meeting before the election).

Is your best guess now? It ranges from 0.75 to 1 point. maybe.

Currently, the market sees a 10% chance that Powell will cut it by 0.5 points or less. Until just a day ago, the probability was 0%.

There are interest rates that the Fed does not control (directly, anyway) but that have a greater impact on the economy. 10-Year Treasury Bond BX: TMUBMUSD10Y..
Jobs figures show that the 10-year return has surpassed 4%, up from less than 3.9% just before.

The 10-year rate is not an important benchmark for corporate borrowing and financial markets. It is also the main interest rate that lenders use when setting interest rates on fixed 30-year mortgages.

So the latest jobs figures could help keep mortgage rates high for longer and delay the day when mortgage rates start to fall. As every homeowner and buyer in America knows, today’s relatively high mortgage rates have helped freeze much of the real estate market. Homeowners don’t want to give up the fixed-rate mortgages they’ve had locked up during the pandemic. So many people are holding off on selling. And scarcity has helped drive up house prices, sparking a crisis for those looking to buy, especially young people.

This isn’t good news.

(Donald Trump fully understands how important interest rates are to his campaign. He appeared on Fox Business on Friday to pressure Powell to push rates higher, complaining that the Federal Reserve governor is “political” and will cut rates (To help Biden’s re-election, even though Trump himself nominated Powell to lead the Federal Reserve in 2017.)

see: Initial Market Reaction: Too Hot

But if the nonfarm payroll data doesn’t help you, there are also completely different numbers released by the Labor Department on Friday. Those are the figures from the government’s second survey, which surveyed households instead of employers.

Surprisingly, this does not signal continued strength in the labor market. they are showing Weakness.

Households reported employment figures declined last month. This jobs figure fell by 31,000 jobs in January even on a seasonally adjusted basis (meaning it takes things like temporary Christmas jobs out of the picture). In fact, there have been 714,000 fewer jobs since November, and the survey found that there are fewer jobs in the U.S. now than there were last summer.

What’s more ominous is that full-time employment, a key indicator of a healthy job market, peaked in June, according to the Household Survey. Since then, there has been a decline of 1.6 million (seasonally adjusted).

Other indicators that often indicate a weak job market have also increased, such as the number of potential workers who have given up looking for work.

what’s the matter? Both surveys are conducted in parallel every month. But they are completely different. One is an “enterprise” survey where we talk to employers. The other targets “households,” that is, workers and people who would become workers.

ClearBridge’s Schulze cautions that while both data series are important, the second survey, Households, is sometimes a better indicator of the future and has been quicker in the past to spot big changes in the direction of the economy. And he said there has been a steady stream of more ominous stories about the job market over the past year.

“These differences are worth watching. Historically, household surveys have been more accurate at inflection points, suggesting job growth may be less impressive than it currently appears,” he wrote.

That means if the economy goes into recession this year, you can expect it to show up in the household survey before it shows up in the better-known business survey, which produces non-farm payroll figures.

see: The hiring report is powerful. Make no mistake. However, it is probably inflated due to the January effect.

Whether the household surveys point to a recession or a recession is another matter. Most economists think the U.S. will avoid a recession and that the Fed will successfully engineer a soft landing for inflation (even if interest rate cuts will come later than many had hoped).

Betting still favors the rosy scenario.

But the figures from the Household Survey look decidedly odd, along with data from the Business Survey that suggest we are living in an unprecedented jobs boom.

Learn more about the Nonfarm Payroll Report.

A soft landing for the economy? How about not landing? The United States is still growing rapidly.

‘bang! ‘How to start the new year’: Economists react to jobs report

The U.S. economy showed signs of restarting even before Friday’s jobs report.